May 14, 2007

Corporate name: Kobayashi Pharmaceutical Co., Ltd.
President & COO: Yutaka KOBAYASHI
(Code No. 4967 The First Section of TSE/OSE)

Kobayashi Pharmaceutical Reports Financial Results for the Year Ended March 31, 2007

Kobayashi Pharmaceutical, Ltd. (TSE: 4967), a leading importer and distributor of medical equipment and pharmaceutical and consumer goods wholesaler, has announced consolidated financial results for the full fiscal year ended March 31, 2007. Net sales, operating income and net income were all higher year-on-year, as the Kobayashi Group continued to unleash the spirit expressed in its management philosophy of "Creativity and Innovation."

The Group cultivated latent customer needs by introducing new products and services and seeding new markets while invigorating existing markets by offering products and services with new added value. Alongside these measures, Kobayashi engaged proactively in forming new partnerships, acquiring new companies and pursuing overseas business expansion. As a result, sales rose 4.1 % to 257,022 million yen, 10,169 million yen higher than in the previous consolidated fiscal year.

The Group invested extensively in advertising to build up its brands, but this was offset by sales growth in product categories with high profit margins, in addition to cost cutting accomplished with far-reaching reductions in the cost of production and an overhaul of sales promotion costs. As a result, operating income rose 1,149 million yen (6.8 %) over the previous year to 18,029 million yen.

Equity in earnings of affiliates fell, however, while losses on the revaluation and retirement of inventory valuation due to product returns and product upgrades increased. As a result, ordinary income dropped 138 million yen (-0.9 %) to 15,012 million yen. Net income was 8,297 million yen, up 822 million yen or 11.0% higher than the previous period. This sharp rise can be attributed to 1,655 million yen in impairment losses posted in the previous period.

I. Consolidated Financial Summary for the Full Year Ended March 31, 2007

                                                     (Millions of Yen)
------------------------------------------------------------------------
                       Full Year Ended   Full Year Ended    YoY Change    
                        March 31, 2007    March 31, 2006       Percent
------------------------------------------------------------------------ 
   
Operating Results

------------------------------------------------------------------------ 
Net Sales                      257,022          246,852           4.1
Operating Income                18,029           16,879           6.8
Ordinary Income                 15,012           15,151          (0.9)
Net Income                       8,297            7,474          11.0
------------------------------------------------------------------------
Net Income per Share (Yen)      200.77           179.17          12.1

------------------------------------------------------------------------ 

Financial Position

------------------------------------------------------------------------ 
Total Assets                   164,555          151,945        12,610
Total Sh'holders Equity         77,236           66,811        10,424 
Sh'holders Equity Ratio          45.2%            44.0%          1.2%
Shareholders EPS (Yen)        1,799.87         1,617.10        182.77
------------------------------------------------------------------------ 

Cash Flows

------------------------------------------------------------------------ 
Net Cash from 
  Operating Activities           8,833           13,159       (4,325)
Net Cash from
  Investing Activities         (11,803)          (6,414)      (5,388)
------------------------------------------------------------------------ 
Free Cash Flow                  (2,969)           6,744       (9,713)
------------------------------------------------------------------------ 
Net Cash from
  Financing Activities          (2,433)          (1,419)      (1,013)
------------------------------------------------------------------------
Cash and Cash Equivalents 
  at End of Period              19,090           24,436       (5,346)
------------------------------------------------------------------------

Please download the Financial Results for the Year Ended March 31, 2007 here, or via Bloomberg, MultexNet, Reuters Research or Thomson One Analytics.

II. Performance by Business Segment

Consumer Products

The Kobayashi Pharmaceutical Group launched 35 new products, excluding nutritional supplement food products, creating new markets and expanding existing markets in this business segment. Sales of Nicitol 85, a diet pill for reducing abdominal fat, Cleair, an air freshener that eliminates unpleasant household odors by releasing ions, and Shoshu Shabon, a deodorizing air freshener that gives rooms a refreshing clean scent made particular contributions to sales growth. Sales of body warmers slackened this year due to the record-breaking warm winter, but the body warmer business is gaining ground overseas and sales improved for the "amazing socks that keep feet warm."

As a result, sales in the Consumer Products division improved 8.2% to 102,503 million yen, an increase of 7,726 million yen over the previous period.

Sales growth in product categories with high profit margins as well as cost-cutting achieved by drastic reductions in the cost of production cost succeeded in boosting operating income to 16,560 million yen up 1,113 million yen or 7.2 % higher than the previous fiscal period.

Wholesale Operations

Wholesale Operations were marked by disappointing sales of seasonal products to drugstores, our principal customers, and a slump in the market for health foods, due to unseasonable weather. Nevertheless, the Company acquired all outstanding shares in KS Tohoku Co., Ltd. (the former Sowa Co., Ltd.), on April 1, 2006, and sales rose 5.0% to 164,840 million yen, an increase of 7,905 million yen on the previous term.

With regard to profits, while the expanded business scale did allow the Company to take advantage of the economies of scale by purchasing products in bulk from manufacturers, there were delays in improving the profit ratio due to the stock take-over. As a result, operating income declined by 112 million yen, or 25.8% compared to the previous fiscal period, to 323 million yen.

Medical Devices Operations

The Kobayashi Medical Division faced a difficult environment due to the reduction in NHI reimbursement prices, but concentrated sales efforts in the orthopedic field, where demand is expected to increase, and in surgical products, such as electronic scalpels. Sales were strong for proprietary brand products that have been actively promoted.

The three Shield Healthcare Centers in the US succeeded in raising profit margins by introducing new customer management systems and reducing back-office costs. However, we do not anticipate synergies with existing businesses, so in November 2006 we transferred our shareholdings in these three companies to Dharma Ventures Group, Inc., a special purposes company established by the Shield management team.

Accordingly, Sales for Medical Devices Operations fell 630 million yen, or 3.7%, to 16,496 million yen, while operating income declined by 21 million yen, or 3.6%, to 561 million yen. Equity in earnings of Medicon, Inc., an equity-method affiliate, declined 57.8% to 110 million yen.

Other Operations

Other Operations (transportation, sales promotion, market research, etc.) are conducted on a financially independent basis by Kobayashi Pharmaceutical's subsidiaries in support of the Company's three principal businesses and to contribute to the profits of those businesses. The Group reviewed the transfer values of the materials and services these operations provide.

As a result, sales of Other Operations rose 1.0%, or 136 million yen, to 13,112 million yen. Operating income declined slightly to 390 million yen, by 12 million yen, or 3.0% less than the previous fiscal period. Segment sales, including internal sales and transfers between segments, rose to 9,142 million yen in the term from 9,053 million yen in the previous period.

III. Financial Position and Cash Flows as of March 31, 2007

Total assets increased 12,610 million yen compared with the end of the previous fiscal year. This was primarily due to an increase of 3,637 million yen in trade notes and accounts receivable and 2,323 million yen in inventories as current assets.

In terms of current liabilities, trade notes and accounts payable increased 2,138 million yen. In addition, retained earnings as a part of net assets increased 6,689 million yen.

- Cash Flow from Operating Activities

Net cash provided by total operating activities decreased 4,325 million yen to 8,833 million yen compared to the previous fiscal period. This was primarily because net income before taxes and other adjustments increased 2,028 million yen, but business tax payments increased 1,376 million yen and trade payable fell 4,996 million yen.

- Cash Flow from Investing Activities

Net cash used in investing activities totaled 11,803 million yen, an increase of 5,388 million yen over the previous fiscal period. This was mainly due to 9,062 million yen in payments to acquire shares in an overseas subsidiary.

- Cash Flow from Financing Activities

Net cash used in financing operations totaled 2,433 million yen, an increase of 1,013 million yen compared to the previous fiscal period. This was mainly due to an increase in the payment of dividends in this fiscal period.

Accordingly, the term-end balance of cash and cash equivalents decreased 5,346 million yen over the previous fiscal period to 19,090 million yen

* The following formula was used to calculate free cash flow: Free cash flow = Cash flow from operating activities + cash flow from investing activities

Cash Flow Forecast for Fiscal 2008

The operating environment remains severe, but we will strive to reduce inventories and accounts receivable so as to improve efficiency of the investment capital. Stable investments in plants and equipment for product development are expected to average those of the previous fiscal year. We do not anticipate any large investments other than capital spending, and as a result, we expect cash flows from investing activities to decrease compared to the previous fiscal year.

Cash flow from financing activities is forecast to remain level with the previous fiscal year.

Trend of Cash Flow Indices

------------------------------------------------------------------------
                       March/03  March/04  March/05  March/06  March/07
------------------------------------------------------------------------
Equity Ratio             39.2%     42.4%     44.7%     44.0%     45.2%
Equity Ratio on Value    82.9%     91.8%     90.5%    113.9%    112.3% 
Debt Redumption 
  Schedule (year)         0.7       0.8       0.3       0.1       0.4
Interest Coverage
  Ratio                  87.9      90.5      96.7     140.6     125.1
------------------------------------------------------------------------
* Equity Ratio = Net Asset / Gross Asset
Equity Ratio on Value = Gross Aggregate Market Price / Gross Asset
Debut Redumption Schedule = Debt with Interest / Operating Cash Flow
Interest Coverage Ratio = Operating Cash Flow / Interest Payment

IV. Forecast for the Fiscal Year Ending March 31, 2008

The Japanese economy is expected to continue to recover, supported by sustained improvements in corporate earnings and firm personal spending.

Under such conditions, to reinforce its competitiveness so that is the leader in the fields in which it operates, Kobayashi Pharmaceutical Group will need to implement a strategy aimed at further bolstering the existing business and brands that form the foundations of the group's management, and at the same time further expand the scope of business operations and carry out a strategy to promote growth.

For the following fiscal year, the Company forecasts sales of 265,000 million yen, an increase of 7,978 million yen or 3.1%, compared to the previous fiscal year. Due to additional major cost-cutting in unit costs and other costs, we forecast operating income of 18,500 million yen, an increase of 471 million yen or 2.6%; ordinary income of 16,000 million yen, an increase of 988 million yen or 6.6%, and net income of 8,750 million yen, an increase of 453 million yen or 5.5%, compared with the previous fiscal year. In line with our basic policy to continue providing stable dividends, the annual dividend for the following fiscal year is expected to be 54 yen per share (an interim dividend of 27 yen and a year-end dividend of 27 yen) as an ordinary allotment.

V. Profit Distribution and Fiscal 2007 and 2008 Dividends

Kobayashi Pharmaceutical regards the distribution of profits to shareholders as one of the Company's most important management policies, and will continue to focus on strengthening this area. For this reason, we ensure that adequate internal reserves for high-growth-oriented business development and strengthening the corporate structure are preserved. At the same time, the Company intends to promote a dividend policy that will reflect consolidated results while maintaining a basic policy of providing stable dividend payments. Internal reserves will be utilized for M&A to grow the consumer products and the medical devices operations and for vigorous investment in expansion overseas.

Based on this policy, the common dividend is expected to be 50.00 yen per share in the fiscal year ended March 2007 and 54.00 yen per share in the fiscal year ending March 2008 (an interim dividend of 27 yen and a year-end dividend of 27 yen per share).

About Kobayashi Pharmaceutical

Kobayashi Pharmaceutical (TSE: 4967; OTC: KBYPF) first opened for business in 1919, and its management policy has always been to provide people and society with wonderful comfort through "Creativity and Innovation". Over the years the Company has expanded its scope, developing into a cluster of enterprises with three principal businesses: Consumer Products Operation, Wholesale Operation and Medical Devices Operation. In the fiscal year ended March 31, 2006, Kobayashi achieved increases in sales and profits for the eighth consecutive year since the introduction of consolidated accounting.

Contact:

Kobayashi Pharmaceutical Online
http://www.kobayashi.co.jp/english/contact/index.html?lid=1